Statement of Cash Flows, Part 1

Joann is preparing a statement of cash flows as part of a homework assignment. She hopes to find a check figure that will help her assess the accuracy of her results. What should Joann do to quickly find a check figure? Wait until the problem is reviewed in class Calculate the change in the beginning and ending balance of cash Send an e-mail inquiry to her professor

Calculate the change in the beginning and ending balance of cash

Which of the following methods for reporting cash flows from operating activities begins with net income and works backward to calculate net cash flow from operating activities? Indirect method Accrual method Matching method Direct method

Indirect method

If interest payable increases, which of the following is true? Interest paid is lower than the interest expense on the income statement. Interest paid is greater than the interest expense on the income statement. Interest paid is equal to interest expense on the income statement.

Interest paid is lower than the interest expense on the income statement.

Select all that apply Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? Interest received on notes receivable Collection from customers Issuance of common stock Borrowing from bank Sale of building

Interest received on notes receivable Collection from customers

Select all that apply Which of the following are cash inflows from financing activities? Issuing stock to investors for cash Purchasing treasury stock Collecting from customers Issuance of bonds Receiving dividends

Issuing stock to investors for cash Issuance of bonds

Select all that apply Which of the following are cash outflows from financing activities? Issue common stock Purchase of supplies Receive interest Pay dividends Repay borrowing from bank

Pay dividends Repay borrowing from bank

Select all that apply Which of the following are cash outflows from financing activities? Issuance of common stock Payment of dividends Payment of income taxes Repayment of note payable Purchase of equipment

Payment of dividends Repayment of note payable

Select all that apply Which of the following are cash outflows from investing activities? Purchase of investment Payment on account payable Purchase of land Purchase of inventory Repurchase of common stock

Purchase of investment Purchase of land

Which of the following would be reported as a cash outflow from financing activities? Sale of common stock Borrowing on a line of credit Purchase of treasury shares Paying interest on a long-term notes payable

Purchase of treasury shares

Select all that apply Which of the following are common financing activities? Purchasing treasury stock Payment of cash dividends Receiving dividends from an investment in another company Issuing common stock

Purchasing treasury stock Payment of cash dividends Issuing common stock

Select all that apply Which of the following cash transactions are classified as cash inflows from investing activities? Sale of investments Sale of merchandise inventory Sale of equipment Borrowing from bank Sale of subsidiary

Sale of investments Sale of equipment Sale of subsidiary

Select all that apply Which of the following are classified as cash inflows from investing activities? Sale of land Issuance of common stock Purchase of an investment Sale of equipment

Sale of land Sale of equipment

Select all that apply Which of the following financial statements provide(s) useful information to prepare the statement of cash flows? The income statement The stockholders' equity statement The balance sheet

The income statement The balance sheet

Roberts Company's operating expenses (excluding depreciation expense) were $50,000 and its balance in prepaid insurance increased by $2,000. Cash paid for operating expenses was: $50,000 $48,000 $52,000

$52,000; Reason: $50,000+$2,000

Western Inc.'s income statement showed net income of $60,000 and depreciation expense of $10,000. Accounts receivable decreased $3,000, Inventory increased $4,000, Supplies increased $1,000, and Accounts payable increased $3,000. Western's net cash flows from operating activities was Blank______. $73,000 $71,000 $79,000 $65,000 $51,000

$71,000; Reason: Net cash flow from operating activities = $60,000 + 10,000 + 3,000 - 4,000 - 1,000 + 3,000

Adam Company's operating expenses (excluding depreciation expense) were $80,000 and its balance in prepaid rent decreased by $5,000. Cash paid for operating expenses was: $75,000 $80,000 $85,000

$75,000

Maier's accounts receivable account shows the following information: beginning balance: $100; debits during the year: $1,250; ending balance: $150. Cash received from customers must be: $1,250 $1,350 $50 $1,200

$1,200 - Reason: $100+$1,250-$150

Sales on account are $100,000. Beginning accounts receivable is $20,000, and ending accounts receivable is $15,000. What is the cash collected from customers during the period? $105,000 $120,000 $95,000 $115,000

$105,000; Reason: $100,000 + 20,000 - 15,000 = $105,000

Neue Inc. reports sales revenue of $200,000; in addition, its accounts receivable balance decreased by $15,000. Neue's cash flows from sales were: $200,000 $185,000 $215,000

$215,000

Sales on account are $200,000. Cash sales during the period are $50,000. Beginning accounts receivable is $20,000, and ending accounts receivable is $30,000. What is the total cash collected from customers during the period? $250,000 $230,000 $220,000 $240,000

$240,000 - Reason: Sales on account + cash sales + the change in accounts receivable = cash collected for the period. $200,000 + 50,000 - 10,000 = $240,000

Select all that apply During the year, Amrerk Inc. recorded sales revenue of $200,000. The balance in accounts receivable increased by $4,000. The amount of cash received from customers can be derived by preparing a journal entry that includes: credit to accounts receivable for $4,000 debit to accounts receivable for $4,000 debit to sales revenue for $204,000 debit to sales revenue for $200,000 credit to sales revenue for $200,000

debit to accounts receivable for $4,000 credit to sales revenue for $200,000

An increase in accounts receivable will result in a(n) ______ in cash from customers when using the direct method to determine cash flows from operations. increase decrease

decrease

When the indirect method is used to report cash flows from operating activities, a decrease in accrued liabilities, such as salaries payable, is subtracted from net income to include the effects of transactions that _____ cash, but ________ net income. do not affect; decrease increase; do not affect do not affect; increase decrease; do not affect

decrease; do not affect

Under the indirect method of preparing the statement of cash flows, depreciation expense is added back to net income because it: increases the cash balance. did not require an outflow of cash. was subtracted in calculating net income. provides an inflow of cash.

did not require an outflow of cash. was subtracted in calculating net income.

Using the ________ method of reporting cash flows from operating activities, we show cash received from customers and cash paid to employees.

direct

The two generally accepted formats for reporting cash flows from operating activities using U.S. GAAP are the operating and nonoperating method. current and noncurrent method. recurring and nonrecurring method. direct and indirect method.

direct and indirect method.

Wiese Company presents its statement of cash flows using the direct method. Wiese must also prepare the operating section using the indirect method and report it: either along with the direct method on the face of the statement or in the financial statement notes along with the direct method on the face of the statement only as a separate note in the financial statement only

either along with the direct method on the face of the statement or in the financial statement notes

Cash flows from ___________ activities include both inflows and outflows of cash from the external funding of a business.

financial

Cash inflows and outflows involving stockholders and creditors are classified on the statement of cash flows as ____________ activities.

financing

By analyzing changes in long-term liabilities and stockholders' equity accounts, we can derive cash flows from investing activities operating activities financing activities

financing activities

Select all that apply The three classifications on the statement of cash flows are cash flows from financing activities. operating activities. investing activities. business activities. discontinued activities.

financing activities. operating activities. investing activities.

Select all that apply In preparing the operating activities section of a statement of cash flows using the indirect method, net income should be adjusted for gain from sale of asset. loss from sale of asset. payment of a noncurrent liability. issuance of bonds for cash. depreciation expense.

gain from sale of asset. loss from sale of asset. depreciation expense.

Select all that apply In order to use a single journal entry to derive cash paid to suppliers for inventory, we need which of the following information? increase or decrease in accounts payable increase or decrease in accounts receivable sales revenue cost of goods sold increase or decrease in inventory

increase or decrease in accounts payable cost of goods sold increase or decrease in inventory

The ___________ method of reporting cash flows from operating activities begins with net income.

indirect

The statement of cash flows provides summary information about cash _______and cash ______during the year.

inflows; and outflows

Cash transactions involving the purchase and sale of long-term assets and current investments are classified on the statement of cash flows as ___________ activities.

investing

By analyzing changes in long-term asset accounts, we can derive cash flows from operating activities financing activities investing activities

investing activities

The purchase and sale of long-term assets and current investments are classified as investing activities. financing activities. operating activities.

investing activities.

An increase in accounts receivable indicates that the company collected ______ cash than the amount of ______. less; sales revenue more; sales revenue

less; sales revenue

Select all that apply Select the items that would be added to net income in order to prepare the operating activities section of a statement of cash flows using the indirect method. loss on sale of land increase in current asset depreciation expense decrease in current asset gain on sale of land

loss on sale of land depreciation expense decrease in current asset

Select all that apply Select the items that would be added to net income in order to prepare the operating activities section of a statement of cash flows using the indirect method. loss on sale of land increase in current asset depreciation expense gain on sale of land decrease in current asset

loss on sale of land depreciation expense decrease in current asset

The starting point for preparing the operating activities section using the indirect method is: ending cash balance net income current assets current liabilities

net income

Dividends received are classified as operating activities, while dividends paid are classified as financing activities because dividends received increase Blank______, and dividends paid decrease Blank______. retained earnings; net income net income; net income net income; retained earnings retained earnings; retained earnings

net income; retained earnings

Depreciation expense is added back to net income when preparing the cash flow from operating activities section because depreciation represents a(n) ______ reduction to net income. cash noncash increase negative decrease

noncash; Reason: Depreciation expense decreases net income on the income statement but does not decrease cash from operating activities on the statement of cash flows (no check is written for depreciation expense). Depreciation expense is a non-cash expense and thus is added back to net income when calculating cash from operating activities.

When using the direct method to prepare the Statement of Cash Flows, depreciation expense is shown as outflows in the operating section of the statement of cash flows. shown as inflows in the operating section of the statement of cash flows not reported on the statement of cash flows.

not reported on the statement of cash flows.

Cash receipts and cash payments for transactions relating to revenue and expense activities are classified on the statement of cash flows as operating activities investing activities financing activities

operating activities

The primary purpose of the statement of cash flows is to report activities that increased or decreased cash during the year and to group those activities based on liquidity, solvency, and profitability operating, investing, and financing current and noncurrent

operating, investing, and financing

The statement of cash flows classifies items as recurring and nonrecurring. operating and nonoperating. current and noncurrent. operating, investing, and financing.

operating, investing, and financing.

Select all that apply Which of the following transactions would be classified as financing activities in the statement of cash flows? Purchase of another company's common stock payment of cash dividends repayment of a long-term loan Purchase of another company's bonds

payment of cash dividends repayment of a long-term loan

Select all that apply Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? payment on account purchase of building purchase of supplies on account issuance of bonds payment of salaries

payment on account payment of salaries

Select all that apply Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? payment on account payable retirement of common stock interest paid on bonds purchase of supplies purchase of a building

payment on account payable interest paid on bonds purchase of supplies

Select all that apply Which of the following are cash outflows from investing activities? purchase of land repayment of long-term debt payment of income taxes purchase of long-term investments cash acquisition of another company

purchase of land purchase of long-term investments cash acquisition of another company

Changes to current assets and current liabilities require adjustment of net income under the indirect method because related cash may be higher or lower than the accrued amount included in net income these changes increase or decrease cash flows related to debt and stockholders' equity these changes increase or decrease cash flows related to long-term assets

related cash may be higher or lower than the accrued amount included in net income

Select all that apply Kleister Company issues bonds for $100 million and repays a long-term notes payable of $10 million. The company also sells its own common shares for $12 million and pays cash dividends of $5 million. Which of the following are cash outflows from financing activities? sale of Kleister Company common shares repayment of notes payable payment of cash dividends issuance of bonds

repayment of notes payable payment of cash dividends

The basic purpose of the statement of cash flows is to report the activities that changed the cash balance during the year report the accrual-based activities during the year show that the company was profitable report every increase and decrease in non-cash accounts during the year

report the activities that changed the cash balance during the year

Select all that apply Noncash investing and financing activities are either: reported in the notes to the financial statements reported as investing and financing activities on the statement of cash flows reported directly after the statement of cash flows

reported in the notes to the financial statements reported directly after the statement of cash flows

Select all that apply Which of the following transactions would be classified as financing activities in the statement of cash flows? sale of the company's common stock Repurchase of the company's own common stock issuance of bonds Purchase of another company's common stock

sale of the company's common stock Repurchase of the company's own common stock issuance of bonds

The financial statement that provides information about cash receipts and cash disbursements for the period is the income statement. statement of retained earnings. balance sheet. statement of cash flows.

statement of cash flows.

In a statement of cash flows, the sum of cash inflows and outflows is equal to cash flows from operating activities. net income plus depreciation and amortization. the change in the cash balance.

the change in the cash balance.

Cash inflows ------> Cash received by the company during the period Cash outflows -------> Cash paid by the company during the period

xx

If a company chooses to prepare the operating section of the statement of cash flows using the direct method, it must also report using the indirect method. True false question

True

Cost of goods sold must be adjusted to a cash number because the cost of merchandise sold may be more or less than the amount of cash paid to suppliers during the period. True false question

True; Reason: Inventory is purchased from suppliers and sold to customers. The inventory may either be paid for with cash or purchased on account to be paid in the future. The cost of the inventory sold may be more or less than the cash that has actually been paid for the inventory at year end.

Using the indirect method to report cash flows from operating activities, a decrease in the inventory account will be______ net income to arrive at net cash flow provided by operating activities. subtracted from added back to

added back to

Using the indirect method to report cash flows from operating activities, a decrease in the prepaid rent account will be______ net income to arrive at net cash flow provided by operating activities. added back to subtracted from

added back to

When preparing the statement of cash flows using the indirect method, depreciation expense is______ net income. added to subtracted from

added to

Grant's income statement reveals a loss from the sale of land. In preparing the operating activities section of the statement of cash flows using the indirect format, the loss should be subtracted from net income. added to net income. ignored.

added to net income.

One of the purposes of adjusting net income for changes to certain balance sheet accounts is to convert items included in net income to cash. derive the correct ending balance of cash.

convert items included in net income to cash.

Select all that apply Peck Company's ledger reveals the following information: cost of goods sold $500,000; decrease in accounts payable: $20,000; decrease in inventory: $10,000. Which of the following debits and credits would be included in a journal entry used to derive cash paid to suppliers for inventory? credit inventory debit cost of goods sold debit accounts payable credit cost of goods sold debit inventory credit cash credit accounts payable debit cash

credit inventory debit cost of goods sold debit accounts payable credit cash

Select all that apply During the year, Unger Inc. recorded sales revenue of $400,000. The balance in accounts receivable decreased by $4,000. The amount of cash received from customers can be derived by preparing a journal entry that includes: debit to sales revenue for $400,000 credit to accounts receivable for $4,000 credit to sales revenue for $400,000 debit to sales revenue for $404,000 debit to accounts receivable for $4,000

credit to accounts receivable for $4,000 credit to sales revenue for $400,000

Select all that apply Haizel reports interest expense of $15,000 for the current year. During the year, interest payable increased by $1,000. The journal entry used to derive cash paid for interest would include: debit to interest payable for $1,000 credit to interest payable for $1,000 debit to interest expense for $15,000 credit to interest expense for $15,000

credit to interest payable for $1,000 debit to interest expense for $15,000

Select all that apply Analysis of Western's comparative balance sheet reveals that the land account decreased by $100,000; the income statement shows a loss of $50,000. The journal entry used to derive the amount of cash received from the sale of land would include: debit to land for $100,000 credit to cash for $50,000 credit to land for $100,000 credit to loss for $50,000 debit to loss for $50,000 debit to cash for $50,000

credit to land for $100,000 debit to loss for $50,000 debit to cash for $50,000

Select all that apply Which of the following accounts results in adjustments to net income under the indirect method of preparing the statement of cash flows if their balances change during the year? Notes receivable Bonds payable Accounts receivable Inventory Accounts payable

Accounts receivable Inventory Accounts payable

We can determine cash received from customers by analyzing the accounts receivable account. Which of the following approaches would lead to the correct result? Beginning A/R balance + increase in A/R + ending A/R balance Increase in A/R - beginning A/R balance - ending A/R balance Beginning A/R balance + increase in A/R - ending A/R balance Increase in A/R - beginning A/R balance + ending A/R balance

Beginning A/R balance + increase in A/R - ending A/R balance

We can determine cash paid to suppliers during the period by analyzing the accounts payable account. Which of the following approaches would lead to the correct result? Credits during the period -- beginning balance + ending balance Beginning balance + credits during the period -- ending balance Credits during the period -- beginning balance -- ending balance Ending balance + credits during the period -- ending balance

Beginning balance + credits during the period -- ending balance

When using the_______ method for determining cash flows from operations, noncash expenses are omitted from the Statement of Cash Flows.

Blank 1: direct

The two acceptable methods for U.S. GAAP for reporting cash flows from operating activities are the_________method and the_______ method.

Blank 1: direct Blank 2: indirect

In order to determine the amount of inventory purchased during the year using only the inventory account, we combine the amount of cost of goods sold with the_________ balance of inventory and subtract the________ balance of inventory.

Blank 1: ending or end-of-period Blank 2: beginning, starting, or beginning-of-period

A decrease in accounts receivable will result in a(n) __________in cash from customers when using the direct method to determine cash flows from operations.

Blank 1: increase or inflow

A(n) ___________ in accounts payable indicates that cash payments were less than credit purchases and must be subtracted from purchases to calculate cash payments to suppliers.

Blank 1: increase or rise

The difference between cash ______and cash _______ is called net cash flows and represents the change in cash during the period.

Blank 1: inflows or inflow Blank 2: outflows or outflow

When using the indirect method to prepare the operating activities section of the statement of cash flows, the first amount listed is _______ ______. . (Enter one word per blank.)

Blank 1: net Blank 2: income, profit, or earnings

Transactions reported on the statement of cash flows that do not increase or decrease cash, but that result in significant investing and financing activities are referred to as __________ activities.

Blank 1: noncash or non-cash

Dividends _________ are reported as operating activities, while dividends _________ are reported as financing activities.

Blank 1: received Blank 2: paid

Select all that apply Which of the following are cash inflows from financing activities? Collection from customers Borrowing from bank Issuance of common stock to investors Interest received Sale of land

Borrowing from bank Issuance of common stock to investors

Select all that apply Which of the following are common financing activities? Borrowing money Payment of cash dividends Issuing common stock Receiving dividends from an investment in another company

Borrowing money Payment of cash dividends Issuing common stock

Which of the following statements is correct regarding the information content of the income statement and the balance sheet? Only the balance sheet provides information that helps determine cash flows. Only the income statement provides information that helps determine cash flows. Both the income statement and balance sheet provide information that help determine cash flows. Neither the income statement nor balance sheet provides information that helps determine cash flows.

Both the income statement and balance sheet provide information that help determine cash flows.

Select all that apply Adjustments to net income in calculating operating cash flows include: Changes in noncurrent assets and noncurrent liabilities Changes in current assets and current liabilities Nonoperating items Noncash items

Changes in current assets and current liabilities Nonoperating items Noncash items

Select all that apply Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? Borrowing from bank Sale of a building Collection from customers Collection of interest Payment of utilities

Collection from customers Collection of interest

We can determine cost of goods purchased during the period by analyzing the inventory account. Which of the following approaches would lead to the correct result? Beginning balance + credits during the period -- ending balance Ending balance - credits during the period -- beginning balance Credits during the period -- beginning balance + ending balance Credits during the period -- beginning balance -- ending balance

Credits during the period -- beginning balance + ending balance

We can determine cost of goods purchased during the period by analyzing the inventory account. Which of the following approaches would lead to the correct result? Credits during the period -- beginning balance -- ending balance Beginning balance + credits during the period -- ending balance Ending balance - credits during the period -- beginning balance Credits during the period -- beginning balance + ending balance

Credits during the period -- beginning balance + ending balance

Which of the following statements best describes the reason depreciation expense is added to net income when preparing the statement of cash flows? Depreciation expense originally reduced net income, but it actually represents a cash inflow for the company. Depreciation expense is not included in net income, so its cash effect must be accounted for separately. Depreciation expense originally reduced net income, but it is not classified as an operating activity. Depreciation expense originally reduced net income, but it is a noncash expense.

Depreciation expense originally reduced net income, but it is a noncash expense.

Which method of preparing the operating activities section of the statement of cash flows consists of a summary of all operating transactions that result in either a debit or a credit to cash? Cash Indirect Accrual Direct

Direct; Reason: The operating activities section can be prepared using either the direct method or the indirect method. The direct method summarizes the transactions directly affecting the cash account.

Noncash items, nonoperating items, and changes in current assets and liabilities are necessary adjustments to _______ ______ to prepare the operating section for the indirect format of the statement of cash flows.

NET INCOME

__________ activities include cash receipts and cash payments for transactions relating to revenue and expense activities.

Operating

If a company chooses to prepare the operating section of the statement of cash flows using the direct method, it must also report using the indirect method. True False

TRUE

Select all that apply Which of the following are cash outflows from investing activities? payment of income taxes cash acquisition of another company purchase of land repayment of long-term debt purchase of long-term investments

cash acquisition of another company purchase of land purchase of long-term investments

When looking at the accounts payable account, we can derive ________ by adding the beginning balance of accounts payable + credits during the period - the ending balance of accounts payable. cash paid to suppliers cash paid for operating expenses cash paid to employees cash received from customers

cash paid to suppliers

When looking at the accounts payable account, we can derive _________ by adding the beginning balance of accounts payable + credits during the period - the ending balance of accounts payable. cash paid for operating expenses cash received from customers cash paid to suppliers cash paid to employees

cash paid to suppliers

The direct method for preparing the statement of cash flows reports cash received and cash paid from operating activities. changes in retained earnings with adjustments. net income with adjustments. cash equivalents adjusted for net income effects.

cash received and cash paid from operating activities.

Select all that apply The two types of adjustments to net income for the indirect method are adjustments for components of net income that do not affect cash. changes in current assets and liabilities during the period that affected cash and were not in net income. changes in stockholders' equity accounts during the period that affected cash. changes in liabilities and stockholders' equity accounts during the period that affected cash.

components of net income that do not affect cash. changes in current assets and liabilities during the period that affected cash and were not in net income.